Qualcomm: A Quality "Call"

"The stocks that are establishing themselves as the new
leaders-while
the market has been correcting-
are exactly the stocks that I
want to be long when the market turns," says trading expert Bryan
Perry . Here, he looks at
a favorite-Qualcomm.

"The stocks that perform the best during the coming
weeks will likely be the ones that fund mangers trust and will buy on the
way up. If we do get an oversold rally in the next couple of weeks, the stocks
that will get the most out of it will obviously be those companies that beat
estimates handily and boosted guidance considerably. No nickel-and-dime stuff;
I'm talking about big upward revisions in revenues and earnings in stocks that
are in industries with high barriers to entry. Very few stocks fit this
description, but there is a sweet spot and that's the basis of our latest pick.

"We recommend going long Qualcomm
(QCOM NASDAQ), which develops, designs, manufactures, and
markets digital wireless telecommunications products and services based on its
code division multiple access (CDMA) technology. The company develops and
supplies CDMA-based integrated circuits and system software for wireless voice
and data communications and global positioning system (GPS) products to wireless
device and infrastructure manufacturers. It grants licenses to use its
intellectual property portfolio, which includes certain rights essential to
and/or useful in the manufacture and sale of CDMA products, and receives license
fees, as well as ongoing royalties based on sales by licensees of wireless
telecommunications equipment products incorporating its CDMA
technologies.

"Qualcomm is fast becoming the Intel of
the wireless chip business, and CDMA is rapidly emerging as superior technology
over GSM and being embraced as the technology of choice by most new wireless
initiatives. The company is enjoying accelerating business momentum. For the
nine months ended June 27, revenues rose 26% to $3.76 billion. Net income from
continuing operations increased 73% to $1.34 billion. Revenues reflect higher
sales of Mobile Station Modem and accompanying radio frequency integrated
circuits. Higher income also reflects improved gross margins and lower
investment losses. The stock will split on Aug 13 and company also announced
they are raising their dividend by 40%. From a technical standpoint, the stock
is a beast and we should soon see the stock commence a brand-new
uptrend."

"In addition to the common stock, we also recommend the
Qualcomm January 60 Call (AAOAL) at market. The calls are currently offered at
$13.30 per contract. There are over 16,200 contracts of open interest in this
contract -
it's very liquid. If the stock gets to $80,
which is only a 13% move during the next three months, the calls will be worth
at least $21 for a projected gain of 55%. And by going deep in the money, we pay
only $2.80 in time premium for the next six months. So we're looking for a 13%
move up in the common stock to generate a 55% profit in the call options. I like
the math."